Opening a restaurant is one of the most common small business ventures because it seems simple enough. Instead of working daily to feed your family, you can just expand it a bit and feed hordes of people with the meals you prepare. People need to eat after all, right?
But then again, you’ll find that running a restaurant business is not really that easy. Funding for startup restaurants is going to be a problem even right at the start, and when you’re getting your stride with your operations you may stumble every now and then due to problems about marketing and customer interest, supplies, and equipment. Even choosing a location for your restaurant can be a challenge.
So how can you get small business loans to finance your restaurant? Here are some ideas:
- First of all, you need to demonstrate your confidence in your eventual success by using your savings on your restaurant venture. About 80% of all startups are at least partly financed by the founder’s savings. Others also use their credit cards as well.
- Then you can approach your family and friends. About a third of all startups go this route. Aside from wanting to see you succeed, people close to you may also enjoy the idea of a family restaurant where they can hang out.
- You can then apply for an SBA-backed loan. The local SBA office can give you a list of nearby banks which have a history of lending to restaurants.
- There are several main requirements you’ll have to meet first though, if you want to get a loan from a bank. You’ll need to prepare your paperwork, and that includes a comprehensive business plan. You must have an excellent credit rating and preferably some experience in the industry.
- In all likelihood, the bank will also ask if you can get a second mortgage on your home.
- If you own the restaurant property outright, you may use that property as collateral for your loan.
- You can also use your equipment as collateral if you own them outright.
- You can also try to get some alternative funding sources, such as factoring or merchant cash advances. For example, you can get a $10,000 loan, and the lender can then get 10% of your daily credit card revenues until the loan and the interest is fully paid up.
The advantage of this repayment schedule is that it accounts for any seasonal changes in your sales. So even if you’re undergoing a period of disinterest from customers (maybe you cater to students and it’s the holiday season) you can still surely make your loan payments.
The main drawback here is that the percentage will be taken from the sales no matter what, so you risk not having enough money left to pay for utilities, rent, inventory, equipment maintenance, and payroll.
Running a restaurant isn’t easy. But with a good location, great food, nice ambiance, and superb service, you can actually succeed only if you have enough money operate the business smoothly.